What does QH’s new investment arm mean for foreign investors?
In February, Qatar created a new US$12 billion (QR43 billion) investment firm, the Doha Global Investment Company (DGIC).
Backed by blue-chip assets from its US$100 billion (QR365 billion) plus sovereign wealth fund (SWF), Qatar Holding (QH), and its subsequent listing on the Qatar Stock Exchange (QSE), as recently announced by QH, is intended to: “Stimulate more wealth distribution down the line, giving Qataris a chance to be part of the country’s growth, while also bringing in sophisticated foreign investors once it is listed,” according to R. Seetharaman, chief executive officer of Doha Bank. Certainly the former may be true, as an initial public offering (IPO) will add enormously to the bourse’s liquidity.
But the question of foreign investor involvement is an entirely different matter. Firstly, although there is vague talk that foreigners will be allowed to buy into the firm’s stocks at some point in the future, will this really pan out? Although supposedly separate from QH, the remit for the new firm looks surprisingly similar to the SWF, with Hussain Al Abdullah, Qatar Holding’s vice chairman, saying that DGIC will invest in shares, bonds, real estate, and private equity opportunities around the globe, just like QH.
QR12 billionThe newly formed Doha Global Investment Company (DGIC) is initially being bankrolled with US$3.5 billion (QR12 billion) of assets by parent company Qatar Holding.
SWF’s are the jewels of a country’s financial trophy cabinet, so it would be an extraordinary event to allow foreigners to take meaningful stakes in one. And second, even if they are allowed, would they want to? It is difficult to see what type of institutional investor would want a part of this type of opportunistic operation without having a major say on investment policy, which Qatar may never allow.
As an initial move into opening up a broader and deeper stock exchange, though, DGIC may play some part, and doing this for the QSE will be necessary at some point soon. In this respect, over the course of 2012, international investors withdrew Qatari equities, and worse still, international lenders cut their exposure to Qatar by US$11.5 billion (QR41 billion), according to data from the Bank for International Settlements.
All of this has militated into a situation in which Qatar’s domestic banks have been compelled to step into the lending breach. In related news, in February Doha Bank announced the launch of a two-phase capital increase in the form of a QR1.55 billion riyal rights issue to local investors.